How does a bridging loan work?
A bridging facility provides short-term secured funding while a defined exit—normally sale or refinance—is completed. Speed is useful only when the borrower understands the completion cash, interest method, fees, security, covenants and consequences of delay.
Do not use a generic online rate as a quote. Pricing and leverage depend on security, valuation, borrower, works, credit, exit, geography and lender appetite.
Gross facility versus net advance
The gross facility is the contractual borrowing limit or balance definition. The net advance is the cash available on completion after any retained interest and fees deducted at drawdown. A high gross LTV can still leave a material cash shortfall.
| Interest method | Cash-flow effect |
|---|---|
| Retained | Expected interest is reserved/deducted from the facility; check unused-interest treatment |
| Rolled up | Interest is added to the balance; confirm simple or compound calculation and facility headroom |
| Serviced | Interest is paid during the term; affordability and missed-payment consequences matter |
Worked example
A £100,000 loan at 1% per month for six months produces £6,000 simple interest before fees. If the lender retains that interest and a 2% arrangement fee from the facility, the net advance can be materially below £100,000. If interest rolls up and compounds, the redemption balance is different again.
Use the bridging cost calculator with the lender illustration’s actual fee bases and interest method.
The cost stack
Include arrangement, broker, valuation, lender legal, borrower legal, exit, monitoring, drawdown and administration fees where applicable. State whether each fee is a percentage of gross facility, net loan, purchase price or another base, and whether VAT is included.
Exit risk is the binding constraint
For a refinance exit, stress qualifying rent, ICR, valuation, LTV, works completion, product criteria and legal timing. For a sale exit, stress net price and time to complete. Then add monthly delay costs and compare them with facility headroom.
The safe decision is not “the bridge is cheap”; it is “the deal still has an evidenced exit and sufficient cash/headroom under a relevant downside case.”
Regulated or unregulated?
The regulatory perimeter depends on borrower, security, occupation and contract facts. Read the regulated bridging guide and obtain advice from an FCA-authorised adviser; this calculator and article do not classify the loan.
References
Reviewed 26 August 2026. Educational finance-cost modelling, not a quote, recommendation or mortgage advice.
